UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-12298 (Regency Centers Corporation)
Commission File Number 0-24763 (Regency Centers, L.P.)
REGENCY CENTERS CORPORATION
REGENCY CENTERS, L.P.
(Exact name of registrant as specified in its charter)
florida (REGENCY CENTERS CORPORATION)
59-3191743
Delaware (REGENCY CENTERS, L.P)
59-3429602
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
One Independent Drive, Suite 114
Jacksonville, Florida 32202
(904) 598-7000
(Address of principal executive offices) (zip code)
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Regency Centers Corporation
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $.01 par value
REG
The Nasdaq Stock Market LLC
Regency Centers, L.P.
None
N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Regency Centers Corporation Yes ☒ No ☐ Regency Centers, L.P. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Regency Centers Corporation:
Large accelerated filer
Accelerated filer
Emerging growth company
Non-accelerated filer
Smaller reporting company
Regency Centers, L.P.:
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Regency Centers Corporation Yes ☐ No ☐ Regency Centers, L.P. Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Regency Centers Corporation Yes ☐ No ☒ Regency Centers, L.P. Yes ☐ No ☒
The number of shares outstanding of Regency Centers Corporation’s common stock was 171,213,003 as of November 4, 2021.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 2021, of Regency Centers Corporation and Regency Centers, L.P. Unless stated otherwise or the context otherwise requires, references to “Regency Centers Corporation” or the “Parent Company” mean Regency Centers Corporation and its controlled subsidiaries; and references to “Regency Centers, L.P.” or the “Operating Partnership” mean Regency Centers, L.P. and its controlled subsidiaries. The term “the Company”, “Regency Centers” or “Regency” means the Parent Company and the Operating Partnership, collectively.
The Parent Company is a real estate investment trust (“REIT”) and the general partner of the Operating Partnership. The Operating Partnership's capital includes general and limited common Partnership Units (“Units”). As of September 30, 2021, the Parent Company owned approximately 99.6% of the Units in the Operating Partnership. The remaining limited Units are owned by third party investors. As the sole general partner of the Operating Partnership, the Parent Company has exclusive control of the Operating Partnership's day-to-day management.
The Company believes combining the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into this single report provides the following benefits:
Management operates the Parent Company and the Operating Partnership as one business. The management of the Parent Company consists of the same individuals as the management of the Operating Partnership. These individuals are officers of the Parent Company and employees of the Operating Partnership.
The Company believes it is important to understand the key differences between the Parent Company and the Operating Partnership in the context of how the Parent Company and the Operating Partnership operate as a consolidated company. The Parent Company is a REIT, whose only material asset is its ownership of partnership interests of the Operating Partnership. As a result, the Parent Company does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing certain debt of the Operating Partnership. Except for $200 million of unsecured private placement debt, the Parent Company does not hold any indebtedness, but guarantees all of the unsecured debt of the Operating Partnership. The Operating Partnership is also the co-issuer and guarantees the $200 million of Parent Company debt. The Operating Partnership holds all the assets of the Company and retains the ownership interests in the Company’s joint ventures. Except for net proceeds from public equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates all remaining capital required by the Company’s business. These sources include the Operating Partnership’s operations, its direct or indirect incurrence of indebtedness, and the issuance of partnership units.
Stockholders’ equity, partners’ capital, and noncontrolling interests are the main areas of difference between the consolidated financial statements of the Parent Company and those of the Operating Partnership. The Operating Partnership’s capital includes general and limited common Partnership Units. The limited partners’ units in the Operating Partnership owned by third parties are accounted for in partners’ capital in the Operating Partnership’s financial statements and outside of stockholders’ equity in noncontrolling interests in the Parent Company’s financial statements.
In order to highlight the differences between the Parent Company and the Operating Partnership, there are sections in this report that separately discuss the Parent Company and the Operating Partnership, including separate financial statements, controls and procedures sections, and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure for the Parent Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company.
As general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have assets other than its investment in the Operating Partnership. Therefore, while stockholders’ equity and partners’ capital differ as discussed above, the assets and liabilities of the Parent Company and the Operating Partnership are the same on their respective financial statements.
TABLE OF CONTENTS
Form 10-Q
Report Page
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020
1
Consolidated Statements of Operations for the periods ended September 30, 2021 and 2020
2
Consolidated Statements of Comprehensive Income for the periods ended September 30, 2021 and 2020
3
Consolidated Statements of Equity for the periods ended September 30, 2021 and 2020
4
Consolidated Statements of Cash Flows for the periods ended September 30, 2021 and 2020
6
8
9
10
Consolidated Statements of Capital for the periods ended September 30, 2021 and 2020
11
13
Notes to Consolidated Financial Statements
15
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
27
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
50
Item 4.
Controls and Procedures
PART II - OTHER INFORMATION
Legal Proceedings
51
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
52
SIGNATURES
53
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2021 and December 31, 2020
(in thousands, except share data)
2021
2020
Assets
(unaudited)
Real estate assets, at cost
$
11,302,487
11,101,858
Less: accumulated depreciation
2,149,681
1,994,108
Real estate assets, net
9,152,806
9,107,750
Investments in real estate partnerships
379,704
467,155
Properties held for sale
22,077
33,934
Cash, cash equivalents, and restricted cash, including $3,288 and $2,377 of restricted cash at September 30, 2021 and December 31, 2020, respectively
362,685
378,450
Tenant and other receivables
139,287
143,633
Deferred leasing costs, less accumulated amortization of $116,737 and $113,959 at September 30, 2021 and December 31, 2020, respectively
68,049
67,910
Acquired lease intangible assets, less accumulated amortization of $305,744 and $284,880 at September 30, 2021 and December 31, 2020, respectively
173,926
188,799
Right of use assets, net
284,317
287,827
Other assets
271,052
261,446
Total assets
10,853,903
10,936,904
Liabilities and Equity
Liabilities:
Notes payable
3,749,273
3,658,405
Unsecured credit facilities
—
264,679
Accounts payable and other liabilities
327,710
302,361
Acquired lease intangible liabilities, less accumulated amortization of $166,590 and $145,966 at September 30, 2021 and December 31, 2020, respectively
361,411
377,712
Lease liabilities
218,776
220,390
Tenants’ security, escrow deposits and prepaid rent
53,269
55,210
Total liabilities
4,710,439
4,878,757
Commitments and contingencies
Equity:
Stockholders’ equity:
Common stock, $0.01 par value per share, 220,000,000 shares authorized; 171,209,046 and 169,680,138 shares issued at September 30, 2021 and December 31, 2020, respectively
1,712
1,697
Treasury stock at cost, 477,126 and 459,828 shares held at September 30, 2021 and December 31, 2020, respectively
(25,318
)
(24,436
Additional paid-in-capital
7,882,613
7,792,082
Accumulated other comprehensive loss
(12,618
(18,625
Distributions in excess of net income
(1,775,668
(1,765,806
Total stockholders’ equity
6,070,721
5,984,912
Noncontrolling interests:
Exchangeable operating partnership units, aggregate redemption value of $51,174 and $34,878 at September 30, 2021 and December 31, 2020, respectively
35,612
35,727
Limited partners’ interests in consolidated partnerships
37,131
37,508
Total noncontrolling interests
72,743
73,235
Total equity
6,143,464
6,058,147
Total liabilities and equity
See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations
(in thousands, except per share data)
Three months ended September 30,
Nine months ended September 30,
Revenues:
Lease income
283,303
234,541
826,390
731,630
Other property income
4,401
2,261
9,428
7,001
Management, transaction, and other fees
19,671
6,142
33,419
19,084
Total revenues
307,375
242,944
869,237
757,715
Operating expenses:
Depreciation and amortization
75,459
84,808
226,935
259,161
Operating and maintenance
43,468
41,345
135,616
123,746
General and administrative
17,789
19,582
58,263
54,489
Real estate taxes
35,779
35,938
107,392
108,618
Other operating expenses
812
1,208
2,687
5,025
Total operating expenses
173,307
182,881
530,893
551,039
Other expense (income):
Interest expense, net
35,993
40,794
108,741
118,605
Goodwill impairment
132,128
Provision for impairment of real estate
(20
115
1,014
Gain on sale of real estate, net of tax
(6,719
(3,237
(38,198
(48,690
Early extinguishment of debt
19,358
Net investment loss (income)
209
(2,046
(3,275
(1,482
Total other expense (income)
29,463
54,869
67,383
220,933
Income (loss) from operations before equity in income of investments in real estate partnerships
104,605
5,194
270,961
(14,257
Equity in income of investments in real estate partnerships
14,243
8,116
26,344
22,358
Net income
118,848
13,310
297,305
8,101
Exchangeable operating partnership units
(519
(57
(1,315
(29
(923
(565
(2,438
(1,670
Income attributable to noncontrolling interests
(1,442
(622
(3,753
(1,699
Net income attributable to common stockholders
117,406
12,688
293,552
6,402
Income per common share - basic
0.69
0.07
1.73
0.04
Income per common share - diluted
1.72
Consolidated Statements of Comprehensive Income
(in thousands)
Other comprehensive income (loss):
Effective portion of change in fair value of derivative instruments:
Effective portion of change in fair value of derivative instruments
138
(666
3,646
(19,187
Reclassification adjustment of derivative instruments included in net income
1,040
2,570
3,109
6,479
Unrealized (loss) gain on available-for-sale debt securities
(49
(263
379
Other comprehensive income (loss)
1,129
1,957
6,492
(12,329
Comprehensive income (loss)
119,977
15,267
303,797
(4,228
Less: comprehensive income attributable to noncontrolling interests:
Net income attributable to noncontrolling interests
1,442
622
3,753
1,699
Other comprehensive income (loss) attributable to noncontrolling interests
89
42
485
(1,106
Comprehensive income attributable to noncontrolling interests
1,531
664
4,238
593
Comprehensive income (loss) attributable to the Company
118,446
14,603
299,559
(4,821
Consolidated Statements of Equity
For the three months ended September 30, 2021 and 2020
Noncontrolling Interests
CommonStock
TreasuryStock
AdditionalPaid InCapital
AccumulatedOtherComprehensiveIncome (Loss)
Distributionsin Excess ofNet Income
TotalStockholders’Equity
ExchangeableOperatingPartnershipUnits
LimitedPartners’Interest inConsolidatedPartnerships
TotalNoncontrollingInterests
TotalEquity
Balance at June 30, 2020
(24,597
7,785,095
(25,135
(1,615,077
6,121,983
36,376
38,843
75,219
6,197,202
57
565
Other comprehensive loss
Other comprehensive loss before reclassification
(551
(2
(60
(62
(613
Amounts reclassified from accumulated other comprehensive loss
2,466
93
104
Deferred compensation plan, net
(90
297
207
Restricted stock issued, net of amortization
3,372
Common stock issued for stock based compensation, net
Common stock issued under dividend reinvestment plan
382
Common stock issued, net of issuance costs
(7
Contributions from partners
312
Distributions to partners
(2,211
Cash dividends declared:
Common stock/unit ($0.595 per share)
(100,949
(455
(101,404
Balance at September 30, 2020
(24,687
7,789,142
(23,220
(1,703,338
6,039,594
35,987
37,542
73,529
6,113,123
Balance at June 30, 2021
(25,887
7,796,699
(13,658
(1,791,773
5,967,080
35,544
37,407
72,951
6,040,031
519
923
Other comprehensive income
Other comprehensive income before reclassification
88
952
84
569
(492
77
3,425
80
404
82,497
82,510
(1,283
(101,301
(456
(101,757
Balance at September 30, 2021
For the nine months ended September 30, 2021 and 2020
Balance at December 31, 2019
1,676
(23,199
7,654,930
(11,997
(1,408,062
6,213,348
36,100
40,513
76,613
6,289,961
Net (loss) income
29
1,670
(17,505
(79
(1,224
(1,303
(18,808
6,282
28
169
197
(1,488
1,695
10,962
10,964
Common stock repurchased for taxes withheld for stock based compensation, net
(5,172
1,138
19
125,589
125,608
443
Issuance of exchangeable operating partnership units
1,275
(4,029
Common stock/unit ($1.785 per share)
(301,678
(1,366
(303,044
Balance at December 31, 2020
1,315
2,438
3,157
16
210
226
3,383
2,850
12
247
259
(882
959
9,466
9,468
(3,662
1,172
Common stock issued for partnership units exchanged
99
(99
(3,272
(303,414
(1,359
(304,773
5
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred loan costs and debt premiums
4,608
7,566
(Accretion) and amortization of above and below market lease intangibles, net
(17,244
(29,847
Stock-based compensation, net of capitalization
9,272
10,654
(26,344
(22,358
Provision for impairment of real estate, net of tax
Distribution of earnings from investments in real estate partnerships
54,310
32,659
Settlement of derivative instruments
(2,472
Deferred compensation expense
2,707
1,381
Realized and unrealized (gain) loss on investments
(3,177
(1,427
Changes in assets and liabilities:
(8,659
4,072
Deferred leasing costs
(7,103
(4,999
(6,932
(7,670
25,879
20,223
(2,524
(6,737
Net cash provided by operating activities
508,478
374,589
Cash flows from investing activities:
Acquisition of operating real estate, net of cash acquired of $2,991 in 2021
(78,611
(16,867
Advance deposits refunded on acquisition of operating real estate
500
100
Real estate development and capital improvements
(120,827
(149,293
Proceeds from sale of real estate
131,861
125,539
Issuance of notes receivable
(21,788
(47,957
Return of capital from investments in real estate partnerships
86,449
23,235
Dividends on investment securities
125
193
Acquisition of investment securities
(22,422
(10,580
Proceeds from sale of investment securities
23,162
10,659
Net cash used in investing activities
(1,571
(65,522
Cash flows from financing activities:
Net proceeds from common stock issuance
Repurchase of common shares in conjunction with equity award plans
(4,066
(5,512
Proceeds from sale of treasury stock
96
269
Distributions to limited partners in consolidated partnerships, net
(2,193
Distributions to exchangeable operating partnership unit holders
(1,363
Dividends paid to common stockholders
(301,897
(300,538
Repayment of fixed rate unsecured notes
(300,000
Proceeds from issuance of fixed rate unsecured notes, net
598,830
Proceeds from unsecured credit facilities
610,000
Repayment of unsecured credit facilities
(265,000
(830,000
Repayment of notes payable
(13,764
(3,891
Scheduled principal payments
(8,448
(8,149
Payment of loan costs
(7,468
(5,063
Early redemption costs
(21,748
Net cash used in financing activities
(522,672
(143,753
Net (decrease) increase in cash and cash equivalents and restricted cash
(15,765
165,314
Cash and cash equivalents and restricted cash at beginning of the period
115,562
Cash and cash equivalents and restricted cash at end of the period
280,876
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of $3,012 and $3,590 in 2021 and 2020, respectively)
113,647
121,307
Cash paid for income taxes, net of refunds
358
898
Supplemental disclosure of non-cash transactions:
Acquisition of real estate previously held within investments in real estate partnerships
(4,609
5,986
Mortgage loans assumed by Company with the acquisition of real estate
111,090
16,359
Mortgage loan assumed by purchaser with the sale of real estate
8,250
Real estate received in lieu of promote interest
13,589
Exchangeable operating partnership units issued for acquisition of real estate
Change in accrued capital expenditures
5,830
16,276
Stock-based compensation capitalized
600
650
Common stock and exchangeable operating partnership dividends declaredbut not paid
101,753
(Distributions to) contributions from limited partners in consolidated partnerships, net
(1,420
Common stock issued for dividend reinvestment in trust
826
819
Contribution of stock awards into trust
1,416
1,439
Distribution of stock held in trust
966
442
Change in fair value of securities
334
288
7
(in thousands, except unit data)
Liabilities and Capital
Capital:
Partners’ capital:
General partner; 171,209,046 and 169,680,138 units outstanding at September 30, 2021 and December 31, 2020, respectively
6,083,339
6,003,537
Limited partners; 760,046 and 765,046 units outstanding at September 30, 2021 and December 31, 2020, respectively
Accumulated other comprehensive (loss)
Total partners’ capital
6,106,333
6,020,639
Noncontrolling interest: Limited partners’ interests in consolidated partnerships
Total capital
Total liabilities and capital
(in thousands, except per unit data)
Net income attributable to common unit holders
117,925
12,745
294,867
6,431
33
457
(1,055
1,007
598
2,895
615
Comprehensive income (loss) attributable to the Partnership
118,970
14,669
300,902
(4,843
Consolidated Statements of Capital
General Partner Preferredand Common Units
LimitedPartners
TotalPartners’Capital
Noncontrolling Interests inLimited Partners’ Interest inConsolidated Partnerships
TotalCapital
6,147,118
6,158,359
(553
2,477
(103,615
Restricted units issued as a result of restricted stock issued by Parent Company, net of amortization
Common units repurchased and retired as a result of common stock repurchased and retired by Parent Company
Common units issued as a result of common stock issued by Parent Company, net of redemptions
385
6,062,814
6,075,581
5,980,738
6,002,624
956
(103,040
Common units repurchased as a result of common stock repurchased by Parent Company, net of issuances
484
6,225,345
6,249,448
(17,584
6,310
(307,073
Common units issued as a result of common stock issued by Parent Company, net of issuance costs
(4,034
3,173
Amounts reclassified from accumulated other comprehensive income
2,862
(308,045
(2,490
Common unit exchanged for common stock of Parent Company
(303,260
(301,904
Common stock issued by Parent Company for partnership units exchanged
Common stock issued by Parent Company for dividend reinvestment plan
14
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Unaudited Consolidated Financial Statements
September 30, 2021
1.
Organization and Significant Accounting Policies
General
Regency Centers Corporation (the “Parent Company”) began its operations as a Real Estate Investment Trust (“REIT”) in 1993 and is the general partner of Regency Centers, L.P. (the “Operating Partnership”). The Parent Company primarily engages in the ownership, management, leasing, acquisition, and development and redevelopment of shopping centers through the Operating Partnership, and has no other assets other than through its investment in the Operating Partnership, and its only liabilities are $200 million of unsecured private placement notes, which are co-issued and guaranteed by the Operating Partnership. The Parent Company guarantees all of the unsecured debt of the Operating Partnership.
As of September 30, 2021, the Parent Company, the Operating Partnership, and their controlled subsidiaries on a consolidated basis owned 298 properties and held partial interests in an additional 104 properties through unconsolidated Investments in real estate partnerships (also referred to as “joint ventures” or “investment partnerships”).
The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. These adjustments are considered to be of a normal recurring nature.
COVID-19 Update
The COVID-19 pandemic continues to impact the Company’s business performance as it relates to occupancy and leasing volumes and how revenue recognition is impacted by rent collections and tenant credit risk. Rent collection rates since the pandemic began have been lower than historical pre-pandemic averages, but have steadily increased during 2021 since a low point in the second quarter of 2020. Collection rates may remain lower than historical pre-pandemic averages for the foreseeable future. The success of tenants and their ability to pay rent continue to be significantly influenced by other pandemic-related challenges such as rising costs, labor shortages, supply chain constraints, reduced in-store sales, as well as mask and vaccine mandates, and the effectiveness of vaccines against variants of the COVID-19 virus. The extent to which the COVID-19 pandemic continues to impact the Company’s financial condition, results of operations, and cash flows continues to depend on future developments that may emerge concerning the severity of COVID-19 variants.
Consolidation
The Company consolidates properties that are wholly-owned and properties where it owns less than 100%, but which it has control over the activities most important to the overall success of the partnership. Control is determined using an evaluation based on accounting standards related to the consolidation of Variable Interest Entities (“VIEs”) and voting interest entities.
Ownership of the Operating Partnership
The Operating Partnership’s capital includes general and limited common Partnership Units. As of September 30, 2021, the Parent Company owned approximately 99.6% of the outstanding common Partnership Units of the Operating Partnership, with the remaining limited common Partnership Units held by third parties (“Exchangeable operating partnership units” or “EOP units”). Each EOP unit is exchangeable for cash or one share of common stock of the Parent Company, at the discretion of the Parent Company, and the unit holder cannot require redemption in cash or other assets. The Parent Company has evaluated the conditions as specified under Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity as it relates to exchangeable operating partnership units outstanding and concluded that it has the right to satisfy the redemption requirements of the units by delivering unregistered common stock. Accordingly, the Parent Company classifies EOP units as permanent equity in the accompanying Consolidated Balance Sheets and Consolidated Statements of Equity and Comprehensive Income. The Parent Company serves as general partner of the Operating Partnership. The EOP unit holders have limited rights over the Operating Partnership such that they do not have the power to direct the activities of the Operating Partnership. As such, the Operating Partnership is considered a VIE, and the Parent Company, which consolidates it, is the primary beneficiary. The Parent Company’s only investment is the Operating Partnership. Net income and distributions of the Operating Partnership are allocable to the general and limited common Partnership Units in accordance with their ownership percentages.
Real Estate Partnerships
As of September 30, 2021, Regency had a partial ownership interest in 114 properties through partnerships, of which 10 are consolidated into the Company's financial statements. Regency's partners include institutional investors and other real estate developers and/or operators (the “Partners” or “limited partners”). Regency has a variable interest in these entities through its equity interests, with Regency the primary beneficiary in certain of these real estate partnerships. As such, Regency consolidates the partnerships into its financial statements for which it is the primary beneficiary and reports the limited partners’ interests as Noncontrolling interests. For those partnerships which Regency is not the primary beneficiary and does not control, but has significant influence, Regency recognizes its investment in them using the equity method of accounting.
The assets of these partnerships are restricted to the use of the partnerships and cannot be used by general creditors of the Company. And similarly, the obligations of the partnerships can only be settled by the assets of these partnerships or additional contributions by the partners.
The major classes of assets, liabilities, and non-controlling equity interests held by the Company's consolidated VIEs, exclusive of the Operating Partnership, are as follows:
December 31, 2020
Net real estate investments
237,232
127,240
Cash, cash equivalents and restricted cash
23,587
4,496
Liabilities
64,434
6,340
Equity
28,057
28,685
Revenues and Other Receivables
Other property income includes incidental income from the properties and is generally recognized at the point in time that the performance obligation is met. All income from contracts with the Company's real estate partnerships is included within Management, transaction and other fees on the Consolidated Statements of Operations. The primary components of these revenue streams, the timing of satisfying the performance obligations, and amounts recognized are as follows:
Timing ofsatisfaction ofperformanceobligations
Management, transaction and other fees:
Property management services
Over time
3,450
3,598
10,974
10,830
Asset management services
1,709
1,657
5,143
5,250
Leasing services
Point in time
879
708
3,066
1,948
Other transaction fees
13,633
(1)
179
14,236
1,056
Total management, transaction, and other fees
Includes $13.6 million of promote income earned for exceeding partnership return thresholds resulting from the Company's performance as managing member. This consideration was paid in the form of a real estate asset. See note 2.
The accounts receivable for management services, which are included within Tenant and other receivables in the accompanying Consolidated Balance Sheets, are $11.4 million and $9.9 million, as of September 30, 2021 and December 31, 2020, respectively.
Recent Accounting Pronouncements
The following table provides a brief description of recent accounting pronouncements and expected impact on our financial statements:
Standard
Description
Date of adoption
Effect on the financial statements or other significant matters
Recently adopted:
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes, and also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
Notable changes and clarifications of potential impact include income-based franchise taxes being considered income tax, of which the Company has none, and interim period recognition of enacted changes in tax laws or rates, which is consistent with the Company’s existing practice.
January 2021
The adoption of this standard did not have a material impact to the Company’s financial condition, results of operations, cash flows or related footnote disclosures.
Not yet adopted:
ASU 2021-05, Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments
The amendments in this update affect lessor lease classification. Lessors should classify and account for a lease as an operating lease if both of the following criteria are met: (1) have variable lease payments that do not depend on a reference index or a rate and (2) would have resulted in the recognition of a selling loss at lease commencement if classified as sales-type or direct financing. This update should result in similar treatment under the current Topic 842 as under the previous Topic 840.
January 2022
The adoption of this standard is not expected to have a material impact to the Company’s financial condition, results of operations, cash flows or related footnote disclosures as the Company’s customary lease terms do not result in sales-type or direct financing classification, although future leases may.
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2.
Real Estate Investments
The following tables detail consolidated shopping centers acquired during the periods set forth below:
Nine months ended September 30, 2021
Date Purchased
Property Name
City/State
Property Type
Ownership
PurchasePrice (1)
DebtAssumed,Net ofPremiums
IntangibleAssets
IntangibleLiabilities
7/30/2021
Willa Springs
Winter Springs, FL
Operating
100%
34,500
17,682
1,562
643
8/1/2021
Dunwoody Hall
Dunwoody, GA
32,000
14,612
2,255
973
Alden Bridge
Woodlands, TX
43,000
27,529
3,198
2,308
Hasley Canyon Village
Castaic, CA
31,000
16,941
2,037
Shiloh Springs
Garland, TX
19,500
1,825
1,079
Bethany Park Place
Allen, TX
18,000
10,800
996
1,732
Blossom Valley
Mountain View, CA
44,000
23,611
732
Total property acquisitions
222,000
111,175
14,768
7,467
The purchase prices, presented above, reflect the price for 100% of each property which were part of the seven property USAA portfolio purchase. The basis allocated to Real estate assets was $192.9 million which is net of the Company's carryover basis related to its 20% previously owned equity interest in the partnership.
Nine months ended September 30, 2020
PurchasePrice
1/1/20
Country Walk Plaza (1)
Miami, FL
39,625
3,294
2,452
The purchase price presented above reflects the price for 100% of the property, of which the Company previously owned a 30% equity interest prior to acquiring the partner’s interest and gaining control.
3.
Property Dispositions
The following table provides a summary of consolidated shopping centers and land parcels sold during the periods set forth below:
(in thousands, except number sold data)
Net proceeds from sale of real estate investments
24,284
9,925
6,719
3,237
38,198
48,690
Provision for impairment of real estate sold
571
Number of operating properties sold
Number of land parcels sold
Percent interest sold
70% - 100%
50% - 100%
At September 30, 2021, the Company also had one operating property and one land parcel classified within Properties held for sale on the Consolidated Balance Sheets.
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4.
Other Assets
The following table represents the components of Other assets in the accompanying Consolidated Balance Sheets as of the dates set forth below:
Goodwill, net
169,560
173,868
Investments
62,958
60,692
Prepaid and other
25,026
17,802
Furniture, fixtures, and equipment, net
5,487
6,560
Deferred financing costs, net
8,021
2,524
Total other assets
The following table presents the goodwill balances and activity during the year to date periods ended:
Goodwill
AccumulatedImpairmentLosses
Total
Beginning of year balance
307,413
(133,545
310,388
(2,954
307,434
Goodwill allocated to Provision for impairment
(132,179
Goodwill allocated to Properties held for sale
(1,811
(1,191
1,191
Goodwill associated with disposed reporting units:
(111
111
Goodwill allocated to Gain on sale of real estate
(2,497
(1,784
397
(1,387
End of period balance
302,994
(133,434
As the Company identifies properties (“reporting units”) that no longer meet its investment criteria, it will evaluate the property for potential sale. A decision to sell a reporting unit results in the need to evaluate its goodwill for recoverability and may result in impairment. Additionally, other changes impacting a reporting unit may be considered a triggering event. If events occur that trigger an impairment evaluation at multiple reporting units, a goodwill impairment may be significant.
During 2020, the Company recognized $132.2 million of Goodwill impairment following the market disruptions of the COVID-19 pandemic, which was considered a triggering event requiring evaluation of reporting unit fair values for Goodwill impairment. Of the 269 reporting units with Goodwill, 87 were determined to have fair values lower than carrying value, resulting in $132.2 million of Goodwill impairment.
5.
Notes Payable and Unsecured Credit Facilities
The Company’s outstanding debt, net of unamortized debt premium (discount) and debt issuance costs, consisted of the following:
WeightedAverageContractualRate
WeightedAverageEffectiveRate
Notes payable:
Fixed rate mortgage loans
4.0%
3.9%
362,237
272,750
Variable rate mortgage loans (1)
2.8%
2.9%
144,140
146,046
Fixed rate unsecured debt
3.8%
3,242,896
3,239,609
Total notes payable
Unsecured credit facilities:
Line of Credit (the "Line") (2)
0.9%
1.3%
Term loan (3)
2.0%
2.1%
Total debt outstanding
3,923,084
Four of these variable rate loans have interest rate swaps in place to mitigate the interest rate fluctuation risk. Based on these swap agreements, the effective fixed rates of the four loans range from 2.5% to 4.1%.
(2)
Weighted average effective rate for the Line is calculated based on a fully drawn Line balance.
(3)
Weighted average contractual and effective rates for the Term Loan are as of December 31, 2020, as the entire balance was repaid during January 2021.
Significant financing activity during 2021 includes:
Scheduled principal payments and maturities on notes payable and unsecured credit facilities were as follows:
Scheduled Principal Payments and Maturities by Year:
ScheduledPrincipalPayments
MortgageLoanMaturities
UnsecuredMaturities (1)
2021 (2)
2,808
27,750
30,558
2022
11,389
5,848
17,237
2023
9,695
64,876
74,571
2024
4,849
90,742
250,000
345,591
2025
3,732
40,000
293,732
Beyond 5 Years
10,583
226,234
2,775,000
3,011,817
Unamortized debt premium/(discount) and issuance costs
7,871
(32,104
(24,233
43,056
463,321
Includes unsecured public and private debt and unsecured credit facilities.
Reflects scheduled principal payments for the remainder of the year.
The Company was in compliance as of September 30, 2021, with the financial and other covenants under its unsecured public and private placement debt and unsecured credit facilities, and expects to remain in compliance for the next twelve months and thereafter.
6.
Derivative Financial Instruments
The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors, and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative transactions or purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
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The following table summarizes the terms and fair values of the Company's derivative financial instruments, as well as their classification on the Consolidated Balance Sheets:
Fair Value
Assets (Liabilities) (1)
EffectiveDate
MaturityDate
NotionalAmount
ReceiveVariable Rate of
PayFixed Rate of
8/1/16
1/5/22 (2)
265,000
1 Month LIBOR with Floor
1.053%
4/7/16
4/1/23
19,124
1 Month LIBOR
1.303%
(312
(494
12/1/16
11/1/23
31,917
1.490%
(754
(1,181
9/17/19
3/17/25
24,000
1.542%
(729
(1,288
6/2/17
6/2/27
36,163
2.366%
(2,470
(3,856
(4,265
(9,291
Derivatives in an asset position are included within Other assets in the accompanying Consolidated Balance Sheets, while those in a liability position are included within Accounts payable and other liabilities.
In January 2021, the Company cash settled before maturity $265 million of notional interest rate swaps in connection with its repayment of the Term Loan.
These derivative financial instruments are all interest rate swaps, which are designated and qualify as cash flow hedges. The Company does not use derivatives for trading or speculative purposes and, as of September 30, 2021, does not have any derivatives that are not designated as hedges.
The changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in Accumulated Other Comprehensive Loss (“AOCI”) and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
The following table represents the effect of the derivative financial instruments on the accompanying consolidated financial statements:
Location and Amount of Gain (Loss) Recognized in OCI on Derivative
Location and Amount of Gain (Loss) Reclassified from AOCI into Income
Total amounts presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded
Interest rate swaps
Interest expense
As of September 30, 2021, the Company expects approximately $3.7 million of accumulated comprehensive losses on derivative instruments in AOCI, including the Company's share from its Investments in real estate partnerships, to be reclassified into earnings during the next 12 months.
7.
Leases
All of the Company’s leases are classified as operating leases. The Company's Lease income is comprised of both fixed and variable income. Fixed and in-substance fixed lease income includes stated amounts per the lease contract, which are primarily related to base rent, and in some cases stated amounts for common area maintenance (“CAM”), real estate taxes, and insurance (“Recoverable Costs”). Income for these amounts is recognized on a straight-line basis.
Variable lease income includes the following two main items in the lease contracts:
(i) Recoveries from tenants represents the tenants’ contractual obligations to reimburse the Company for their portion of Recoverable Costs incurred. Generally the Company’s leases provide for the tenants to reimburse the Company based on the tenants’ share of the actual costs incurred in proportion to the tenants’ share of leased space in the property.
21
(ii) Percentage rent represents amounts billable to tenants based on the tenants' actual sales volume in excess of levels specified in the lease contract.
The following table provides a disaggregation of lease income recognized as either fixed or variable lease income based on the criteria specified in ASC Topic 842:
Operating lease income
Fixed and in-substance fixed lease income
201,183
200,020
594,471
607,429
Variable lease income
62,810
60,535
195,538
186,952
Other lease related income, net:
Above/below market rent and tenant rent inducement amortization, net
6,457
7,811
18,460
31,107
Uncollectible straight-line rent
3,655
(7,678
(172
(27,867
Uncollectible amounts billable in lease income
9,198
(26,147
18,093
(65,991
Total lease income
Lease income for operating leases with fixed payment terms is recognized on a straight-line basis over the expected term of the lease for all leases in which collectibility is considered probable at the commencement date. At lease commencement, the Company generally expects that collectibility is probable due to the Company’s credit checks on tenants and other credit analysis undertaken before entering into a new lease; therefore, income from most operating leases is initially recognized on a straight-line basis. Lease income that is not considered probable of collection is recognized on a cash basis. In the period in which collection of Lease income is determined to no longer be probable, all previously recognized straight-line rent receivables are reversed. Should collectibility of Lease income become probable again, accrual basis accounting resumes and all commencement-to-date straight-line rent is recognized. In addition to the lease-specific collectibility assessment performed under Topic 842, the Company may also recognize a general reserve, as a reduction to Lease income, for its portfolio of operating lease receivables which are not expected to be fully collectible based on the Company’s historical collection experience.
The following table represents the components of Tenant and other receivables in the accompanying Consolidated Balance Sheets:
Tenant receivables
24,210
39,658
Straight-line rent receivables
95,588
86,615
Other receivables (1)
19,489
17,360
Total tenant and other receivables
Other receivables include construction receivables, insurance receivables, and amounts due from real estate partnerships for Management, transaction and other fee income.
COVID-19 Pandemic and Rent Concessions
During 2020, in response to the pandemic and the resulting entry into agreements for rent concessions between lessees and lessors, the FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of COVID-19. In this guidance, entities could elect not to apply lease modification accounting with respect to such lease concessions, and instead, treat the concession as if it was a part of the existing contract and therefore continue to recognize the deferred rents in the period originally billed subject to separate collectibility assessments under Topic 842. This guidance is only applicable to COVID-19 related lease concessions that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. The Company has elected to treat concessions that satisfy this criteria as though the concessions were part of the existing contract and therefore not treated like a lease modification.
22
The Company continues to negotiate with certain tenants, which may result in additional rent concessions as determined necessary and appropriate. In determining whether to grant concessions, the Company generally evaluates various factors, including the tenants’ business performance and ability to sustain their business in the current environment, as well as an assessment of their credit worthiness and ability to repay any deferred rent in the future. There can be no assurances that all such deferred rent will ultimately be collected, or collected within the timeframes agreed upon.
8.
Fair Value Measurements
(a) Disclosure of Fair Value of Financial Instruments
All financial instruments of the Company are reflected in the accompanying Consolidated Balance Sheets at amounts which, in management's estimation, reasonably approximate their fair values, except for the following:
CarryingAmount
Financial liabilities:
4,171,212
4,102,382
265,226
The above fair values represent management's estimate of the amounts that would be received from selling those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants as of September 30, 2021, and December 31, 2020, respectively. These fair value measurements maximize the use of observable inputs which are classified within level 2 of the fair value hierarchy. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company's own judgments about the assumptions that market participants would use in pricing the asset or liability.
The Company develops its judgments based on the best information available at the measurement date, including expected cash flows, appropriate risk-adjusted discount rates, and available observable and unobservable inputs. Service providers involved in fair value measurements are evaluated for competency and qualifications on an ongoing basis. As considerable judgment is often necessary to estimate the fair value of these financial instruments, the fair values presented above are not necessarily indicative of amounts that will be realized upon disposition of the financial instruments.
(b) Fair Value Measurements
The following financial instruments are measured at fair value on a recurring basis:
Securities
The Company has investments in marketable securities that are included within Other assets on the accompanying Consolidated Balance Sheets. The fair value of the securities was determined using quoted prices in active markets, which are considered Level 1 inputs of the fair value hierarchy. Changes in the value of securities are recorded within Net investment (income) loss in the accompanying Consolidated Statements of Operations, and include unrealized losses of $1.5 million and unrealized gains of $1.3 million during the three months ended September 30, 2021 and 2020, respectively, and unrealized gains of $217,000 and $251,000 during the nine months ended September 30, 2021 and 2020, respectively.
Available-for-Sale Debt Securities
Available-for-sale debt securities consist of investments in certificates of deposit and corporate bonds, and are recorded at fair value using matrix pricing methods to estimate fair value, which are considered Level 2 inputs of the fair value hierarchy. Unrealized gains or losses on these debt securities are recognized through other comprehensive income.
Interest Rate Derivatives
The fair value of the Company's interest rate derivatives is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements.
23
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its interest rate swaps. As a result, the Company determined that its interest rate swaps valuation in its entirety is classified in Level 2 of the fair value hierarchy.
The following tables present the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis:
Fair Value Measurements as of September 30, 2021
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
Balance
(Level 1)
(Level 2)
(Level 3)
Assets:
47,353
Available-for-sale debt securities
15,605
Interest rate derivatives
Fair Value Measurements as of December 31, 2020
44,986
15,706
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a nonrecurring basis:
Total Gains
(Losses)
Operating properties
25,000
(17,532
9.
Equity and Capital
Common Stock of the Parent Company
Dividends Declared
On November 3, 2021, our Board of Directors declared a common stock dividend of $0.625 per share, payable on January 5, 2022, to shareholders of record as of December 16, 2021.
At the Market (“ATM”) Program
Under the Parent Company's ATM equity offering program, the Parent Company may sell up to $500 million of common stock at prices determined by the market at the time of sale.
24
During May and June 2021, the Company entered into forward sale agreements under its ATM program through which the Company intends to issue 2,316,760 shares of its common stock at a weighted average offering price of $64.59 before any underwriting discount and offering expenses.
During September 2021, the Company settled two of its forward sale agreements and issued 1,332,142 shares at a weighted average offering price of $63.71 before underwriting discount and offering expenses. Net proceeds received at settlement were approximately $82.5 million, after approximately $1.1 million in underwriting discount and offering expenses, and were used to fund acquisitions of operating properties.
The remaining unsettled shares under the forward sale agreements must be settled within one year of their trade dates, which vary by agreement, and range from June 6, 2022 to June 11, 2022. Proceeds from the issuance of the remaining shares under outstanding forward sale agreements are expected to be approximately $64.0 million, before any underwriting discount and offering expenses, and are expected to be used to fund new investments which may include acquisitions of operating properties, fund developments and redevelopments, or for general corporate purposes.
As of September 30, 2021, $350.4 million of common stock remained available for issuance under this ATM equity program.
Share Repurchase Program
On February 3, 2021, the Company's Board authorized a common share repurchase program under which the Company may purchase, from time to time, up to a maximum of $250 million of its outstanding common stock through open market purchases or in privately negotiated transactions. Any shares purchased, if not retired, will be treated as treasury shares. Under the current authorization, the program is set to expire on February 3, 2023, but may be modified or terminated at any time at the discretion of the Board. The timing and actual number of shares purchased under the program depend upon marketplace conditions, liquidity needs, and other factors. Through September 30, 2021, no shares have been repurchased under this program.
Common Units of the Operating Partnership
Common units of the operating partnership are issued or redeemed and retired for each of the shares of Parent Company common stock issued or repurchased and retired, as described above. During the nine months ended September 30, 2021, 5,000 Partnership Units were converted to Parent Company common stock.
10.
Stock-Based Compensation
During the nine months ended September 30, 2021, the Company granted 358,607 shares of restricted stock with a weighted-average grant-date fair value of $46.52 per share. The Company records stock-based compensation expense within General and administrative expenses in the accompanying Consolidated Statements of Operations, and records forfeitures as they occur.
11.
Earnings per Share and Unit
Parent Company Earnings per Share
The following summarizes the calculation of basic and diluted earnings per share:
Numerator:
Income attributable to common stockholders - basic
Income attributable to common stockholders - diluted
Denominator:
Weighted average common shares outstanding for basic EPS
170,090
169,671
169,906
169,081
Weighted average common shares outstanding for diluted EPS
170,589
169,970
170,314
169,356
Income per common share – basic
Income per common share – diluted
25
Income allocated to noncontrolling interests of the Operating Partnership has been excluded from the numerator and exchangeable Operating Partnership units have been omitted from the denominator for the purpose of computing diluted earnings per share since the effect of including these amounts in the numerator and denominator would be anti-dilutive. Weighted average exchangeable Operating Partnership units outstanding for the three months ended September 30, 2021 and 2020, were 760,046 and 765,046, respectively. Weighted average exchangeable Operating Partnership units outstanding for the nine months ended September 30, 2021 and 2020, were 762,601 and 765,046, respectively.
Operating Partnership Earnings per Unit
The following summarizes the calculation of basic and diluted earnings per unit:
Income attributable to common unit holders - basic
Income attributable to common unit holders - diluted
Weighted average common units outstanding for basic EPU
170,850
170,436
170,668
169,846
Weighted average common units outstanding for diluted EPU
171,349
170,735
171,076
170,121
Income per common unit – basic
Income per common unit – diluted
12.
Commitments and Contingencies
Litigation
The Company is involved in litigation on a number of matters and is subject to certain claims, which arise in the normal course of business, none of which, in the opinion of management, are expected to have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. However, no assurances can be given as to the outcome of any threatened or pending legal proceedings. Legal fees are expensed as incurred.
Environmental
The Company is subject to numerous environmental laws and regulations pertaining primarily to chemicals historically used by certain current and former dry cleaning tenants, the existence of asbestos in older shopping centers, and older underground petroleum storage tanks. The Company believes that the ultimate disposition of currently known environmental matters will not have a material effect on its financial position, liquidity, or operations. The Company can give no assurance that existing environmental studies with respect to its shopping centers have revealed all potential environmental contaminants; that its estimate of liabilities will not change as more information becomes available; that any previous owner, occupant or tenant did not create any material environmental condition not known to the Company; that the current environmental condition of the shopping centers will not be affected by tenants and occupants, by the condition of nearby properties, or by unrelated third parties; and that changes in applicable environmental laws and regulations or their interpretation will not result in additional environmental liability to the Company.
Letters of Credit
The Company has the right to issue letters of credit under the Line up to an amount not to exceed $50.0 million, which reduces the credit availability under the Line. These letters of credit are primarily issued as collateral on behalf of its captive insurance program and to facilitate the construction of development projects. As of September 30, 2021 and December 31, 2020, the Company had $9.4 million and $9.7 million, respectively, in letters of credit outstanding.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements in this document regarding anticipated financial, business, legal or other outcomes including business and market conditions, outlook and other similar statements relating to Regency’s future events, developments, or financial or operational performance or results, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as “may,” “will,” “should,” “expect,” “estimate,” “believe,” “intend,” “forecast,” “anticipate,” “guidance,” and other similar language. However, the absence of these or similar words or expressions does not mean a statement is not forward-looking. While we believe these forward-looking statements are reasonable when made, forward-looking statements are not guarantees of future performance or events and undue reliance should not be placed on these statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance these expectations will be attained, and it is possible actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties.
Our operations are subject to a number of risks and uncertainties including, but not limited to, risk factors described in our SEC filings. When considering an investment in our securities, you should carefully read and consider these risks, together with all other information in our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and our other filings and submissions to the SEC. If any of the events described in the risk factors actually occur, our business, financial condition or operating results, as well as the market price of our securities, could be materially adversely affected. Forward-looking statements are only as of the date they are made, and Regency undertakes no duty to update its forward-looking statements except as required by law.
Non-GAAP Measures
In addition to the required Generally Accepted Accounting Principles (“GAAP”) presentations, we use certain non-GAAP performance measures as we believe these measures improve the understanding of the Company's operational results. We believe these non-GAAP measures provide useful information to our Board of Directors, management and investors regarding certain trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, purposes of determining management incentive compensation and budgeting, forecasting and planning purposes. We continually evaluate the usefulness, relevance, limitations, and calculation of our reported non-GAAP performance measures to determine how best to provide relevant information to the public, and thus such reported measures could change.
We do not consider non-GAAP measures an alternative to financial measures determined in accordance with GAAP, rather they supplement GAAP measures by providing additional information we believe to be useful to our shareholders. The principal limitation of these non-GAAP financial measures is they may exclude significant expense and income items that are required by GAAP to be recognized in our consolidated financial statements. In addition, they reflect the exercise of management’s judgment about which expense and income items are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, reconciliations of the non-GAAP financial measures we use to their most directly comparable GAAP measures are provided. Non-GAAP financial measures should not be relied upon in evaluating the financial condition, results of operations or future prospects of the Company.
Defined Terms
The following terms, as defined, are commonly used by management and the investing public to understand and evaluate our operational results:
Companies use different depreciable lives and methods, and real estate values historically fluctuate with market conditions. Since Nareit FFO excludes depreciation and amortization and gains on sale and impairments of real estate, it provides a performance measure that, when compared year over year, reflects the impact on operations from trends in percent leased, rental rates, operating costs, acquisition and development activities, and financing costs. This provides a perspective of our financial performance not immediately apparent from net income determined in accordance with GAAP. Thus, Nareit FFO is a supplemental non-GAAP financial measure of our operating performance, which does not represent cash generated from operating activities in accordance with GAAP; and, therefore, should not be considered a substitute measure of cash flows from operations. We provide a reconciliation of Net Income Attributable to Common Stockholders to Nareit FFO.
We provide Pro-rata financial information because we believe it assists investors and analysts in estimating our economic interest in our consolidated and unconsolidated partnerships, when read in conjunction with the Company’s reported results under GAAP. We believe presenting our Pro-rata share of assets, liabilities, operating results, and certain metrics, along with other non GAAP measures, makes comparisons of other REITs' operating results to ours more meaningful. The Pro-rata information provided is not, nor is it intended to be, presented in accordance with GAAP. The Pro-rata supplemental details of assets and liabilities and supplemental details of operations reflect our proportionate economic ownership of the assets, liabilities, and operating results of the properties in our portfolio.
The Pro-rata information is prepared on a basis consistent with the comparable consolidated amounts and is intended to more accurately reflect our proportionate economic interest in the assets, liabilities, and operating results of properties in our portfolio. We do not control the unconsolidated investment partnerships, and the Pro-rata presentations of the assets and liabilities, and revenues and expenses do not represent our legal claim to such items. The partners are entitled to profit or loss allocations and distributions of cash flows according to the operating agreements, which generally provide for such allocations according to their invested capital. Our share of invested capital establishes the ownership interests we use to prepare our Pro-rata share.
The presentation of Pro-rata information has limitations which include, but are not limited to, the following:
Because of these limitations, the Pro-rata financial information should not be considered independently or as a substitute for our financial statements as reported under GAAP. We compensate for these limitations by relying primarily on our GAAP financial statements, using the Pro-rata information as a supplement.
Overview of Our Strategy
Regency Centers Corporation began its operations as a publicly-traded REIT in 1993, and as of September 30, 2021, had full or partial ownership interests in 402 retail properties primarily anchored by market leading grocery stores. Our properties are principally located in affluent and infill trade areas of the United States, and contain 50.6 million square feet (“SF”) of gross leasable area (“GLA”). All of our operating, investing, and financing activities are performed through our Operating Partnership, Regency Centers, L.P. and its wholly-owned subsidiaries, and through our co-investment partnerships. As of September 30, 2021, the Parent Company owns approximately 99.6% of the outstanding common partnership units of the Operating Partnership.
Our mission is to be the preeminent national owner, operator, and developer of shopping centers, creating places that provide a thriving environment for outstanding retailers and service providers to connect with the surrounding neighborhoods and communities.
Our goals are to:
Refer to Item 1, Note 1 to Unaudited Consolidated Financial Statements. Please also refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional discussion of the impact of the COVID-19 pandemic on the Company’s business including, without limitation, refer to the Risk Factors discussed in Item 1A of Part I thereof.
Results of Executing on our Strategy
During the nine months ended September 30, 2021 and 2020, respectively, we had Net income attributable to common stockholders of $293.6 million, as compared to $6.4 million. Results for the nine months ended September 30, 2020 included a $132.1 million Goodwill impairment charge and $93.9 million of uncollectible Lease income, primarily as a result of the COVID-19 pandemic
During the nine months ended September 30, 2021:
We continued our development and redevelopment of high quality shopping centers:
We maintain a conservative balance sheet providing liquidity and financial flexibility to cost effectively fund investment opportunities and debt maturities:
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Property Portfolio
The following table summarizes general information related to the Consolidated Properties in our portfolio:
(GLA in thousands)
Number of Properties
298
GLA
37,235
37,029
% Leased – Operating and Development
93.4%
92.2%
% Leased – Operating
93.5%
92.3%
Weighted average annual effective rent per square foot ("PSF"), net of tenant concessions.
$23.09
$22.90
The following table summarizes general information related to the Unconsolidated Properties owned in co-investment partnerships in our portfolio:
114
13,365
14,883
93.8%
93.3%
% Leased –Operating
93.7%
93.2%
Weighted average annual effective rent PSF, net of tenant concessions
$22.34
$21.84
For the purpose of the following disclosures of occupancy and leasing activity, “anchor space” is considered space greater than or equal to 10,000 SF and “shop space” is less than 10,000 SF. The following table summarizes Pro-rata occupancy rates of our combined Consolidated and Unconsolidated shopping center portfolio:
% Leased – All Properties
Anchor space
96.4%
95.1%
Shop space
88.5%
87.5%
The following table summarizes leasing activity, including our Pro-rata share of activity within the portfolio of our co-investment partnerships:
LeasingTransactions
SF (inthousands)
Base RentPSF
TenantAllowanceand LandlordWork PSF
LeasingCommissionsPSF
Anchor Leases
New
366
12.02
35.69
4.93
Renewal
92
2,219
14.64
0.65
0.19
Total Anchor Leases
2,585
14.27
5.61
0.86
Shop Space
415
726
34.01
26.58
8.79
963
1,763
1.81
0.78
Total Shop Space Leases
1,378
2,489
9.04
3.11
Total Leases
1,489
5,074
23.95
7.29
1.96
192
13.47
12.40
4.99
2,075
13.11
0.45
0.29
87
2,267
13.14
1.46
239
365
37.35
33.71
11.30
684
1,269
32.36
2.00
0.54
1,634
33.48
9.08
2.94
1,010
3,901
21.66
4.65
1.63
31
The weighted average base rent per square foot on signed shop space leases during 2021 was $34.01 PSF, which is higher than the weighted average annual base rent per square foot of all shop space leases due to expire during the next 12 months of $33.43 PSF. While new and renewal rent spreads were positive at 2.3% as compared to prior rents on those same spaces, future rent spreads could be negatively impacted if the COVID-19 pandemic results in oversupply of vacant retail in the markets in which we operate. This may result in decreased demand for retail space in our centers, which could result in pricing pressure on rents.
Significant Tenants and Concentrations of Risk
We seek to reduce our operating and leasing risks through geographic diversification and by avoiding dependence on any single property, market, or tenant. Based on percentage of annualized base rent, the following table summarizes our most significant tenants, of which the top four are grocers:
Tenant
Number ofStores
Percentage ofCompany-owned GLA (1)
Percentage ofAnnualizedBase Rent (1)
Publix
68
7.4%
3.5%
Kroger
7.5%
3.3%
Albertsons Companies
45
4.6%
3.0%
Amazon/Whole Foods
35
2.6%
TJX Companies
60
3.4%
2.5%
Includes Regency's Pro-rata share of Unconsolidated Properties and excludes those owned by anchors.
Bankruptcies and Credit Concerns
The impact of bankruptcies may increase significantly if tenants occupying our centers are unable to recover from the disruptions caused by, or the continuing challenges from, the COVID-19 pandemic, which could materially adversely impact Lease income. During 2020, we experienced an increase in the number of tenants filing for bankruptcy, but filings have slowed thus far in 2021, and a number of tenants have emerged from bankruptcy after reorganization. However, the potential severity of future variants of COVID-19, evolving challenges of operating with mask and vaccine mandates, and the emerging impacts of labor shortages and supply chain disruptions may adversely impact our tenants.
Although base rent is supported by long-term lease contracts, tenants who file bankruptcy generally have the legal right to reject any or all of their leases and close related stores. Any unsecured claim we hold against a bankrupt tenant for unpaid rent might be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims. As a result, it is likely that we would recover substantially less than the full value of any unsecured claims we hold. Additionally, we may incur significant expense to adjudicate our claim and to re-lease the vacated space. In the event that a tenant with a significant number of leases in our shopping centers files bankruptcy and cancels its leases, we could experience a significant reduction in our revenues.
Our management team devotes significant time to researching and monitoring retail trends, consumer preferences, customer shopping behaviors, changes in retail delivery methods, shifts to e-commerce, and changing demographics in order to anticipate the challenges and opportunities impacting the retail industry. As the economy recovers from the effects of the ongoing pandemic, our tenants may be adversely impacted by challenges such as rising costs, labor shortages, supply chain constraints, and reduced in-store sales, which could have an adverse effect on our results from operations. We seek to mitigate these potential impacts through tenant diversification, replacing weaker tenants with stronger operators, anchoring our centers with market leading grocery stores that drive customer traffic, and maintaining a presence in dense infill trade areas with populations benefitting from high levels of disposal income.
The Company closely monitors its rent collections, which had significantly declined in the initial months of the pandemic, most notably from tenants whose businesses were classified as non-essential and were therefore subject to strict capacity restrictions. Rent collections through November 1, 2021 have continued to improve over initial pandemic levels with approximately 98% of billed base rent collected for the three months ended September 30, 2021. The COVID-19 pandemic has continued to result in certain tenants requesting concessions from rent obligations, including deferrals, abatements and requests to negotiate future rents, while some tenants have been unable to reopen or have not honored the terms of their existing lease agreements. The Company expects to continue to work with tenants, which may result in further rent concessions or legal actions as determined to be necessary and appropriate. There can be no assurances that all such deferred rent will ultimately be collected, or collected within the timeframes agreed upon. Whether vaccination rates will continue to rise, whether state and local authorities impose new mandated closures or capacity restrictions, and whether current vaccines prove to be effective against variants of the COVID-19 virus will also influence the success of tenants and their ability to pay us rent.
We closely monitor the operating performance of tenants in our shopping centers as well as those retailers experiencing significant changes to their business models, such as reduced customer traffic in their stores. Retailers who are unable to withstand these and other business pressures, such as significant cash flow declines or debt maturities, may file for bankruptcy. As a result of our research
32
and findings, we may reduce new leasing, suspend leasing, or curtail allowances for construction of leasehold improvements within certain retail categories or to a specific retailer in order to reduce our risk of loss from bankruptcies and store closings.
Results from Operations
Comparison of the three months ended September 30, 2021 and 2020:
Our revenues changed as summarized in the following table:
Change
48,762
2,140
13,529
64,431
Lease income increased $48.8 million, on a net basis, driven by the following contractually billable components of rent to the tenants per the lease agreements:
Other property income increased $2.1 million primarily due to an increase in settlements.
Management, transaction and other fees increased $13.5 million, including $13.6 million of promote income recognized in consideration for exceeding return thresholds resulting from our performance as managing member of the USAA partnership.
Changes in our operating expenses are summarized in the following table:
(9,349
2,123
(1,793
(159
(396
(9,574
Depreciation and amortization costs decreased, on a net basis, as follows:
Operating and maintenance costs increased, on a net basis, as follows:
General and administrative costs decreased, on a net basis, as follows:
34
The following table presents the components of other expense (income):
Interest on notes payable
36,628
39,238
(2,610
Interest on unsecured credit facilities
558
1,929
(1,371
Capitalized interest
(1,147
(1,141
(6
Hedge expense
109
1,023
(914
Interest income
(155
(255
(4,801
(3,482
(19,358
Net investment income
(25,406
The $4.8 million net decrease in Interest expense is primarily driven by the following changes:
During the three months ended September 30, 2021, we recognized gains on sale of $6.7 million for two land parcels and a portion of an operating property. During the three months ended September 30, 2020, we recognized gains on sale of $3.2 million from four land parcels and the receipt of property insurance proceeds.
During the three months ended September 30, 2020, we had $19.4 million of debt extinguishment costs related to the redemption of our $300 million 3.75% notes due to mature in 2022.
Net investment income decreased $2.3 million primarily driven by changes in unrealized gains and losses of plan assets held in the non-qualified deferred compensation plan. There is an offsetting charge in General and administrative costs related to participant obligations within the deferred compensation plans.
Our equity in income of investments in real estate partnerships increased as follows:
Regency'sOwnership
GRI - Regency, LLC (GRIR)
40.00%
10,080
5,796
4,284
New York Common Retirement Fund (NYC)
30.00%
266
285
(19
Columbia Regency Retail Partners, LLC (Columbia I)
20.00%
562
296
Columbia Regency Partners II, LLC (Columbia II)
702
248
454
Columbia Village District, LLC
372
(41
413
RegCal, LLC (RegCal)
25.00%
530
341
189
US Regency Retail I, LLC (USAA) (1)
20.01%
81
208
(127
Other investments in real estate partnerships
35.00% - 50.00%
1,650
1,013
637
Total equity in income of investments in real estate partnerships
6,127
We acquired our partner’s 80% interest in the seven properties held in the USAA partnership on August 1, 2021; therefore results following the date of acquisition are included in consolidated results.
The $6.1 million increase in our equity in income of investments in real estate partnerships is largely attributable to favorable uncollectible lease income along with re-instating straight-line rent on certain tenants returning to accrual basis during the three months ended September 30, 2021.
The following represents the remaining components that comprised net income attributable to the common stockholders and unit holders:
105,538
(820
104,718
Net income attributable to exchangeable operating partnership units
(462
105,180
Comparison of the nine months ended September 30, 2021 and 2020:
94,760
2,427
14,335
111,522
Lease income increased $94.8 million, driven primarily by the following contractually billable components of rent to the tenants per the lease agreements:
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Other property income increased $2.4 million primarily due to an increase in insurance claim settlements.
Management, transaction and other fees increased $14.3 million, including $13.6 million of promote income recognized in consideration for exceeding return thresholds resulting from our performance as managing member of the USAA partnership.
(32,226
11,870
3,774
(1,226
(2,338
(20,146
General and administrative costs increased, on a net basis, primarily as follows:
Real estate taxes decreased $1.2 million from the sale of operating properties.
Other operating expenses decreased $2.3 million primarily due to lower development pursuit costs.
37
110,252
111,297
(1,045
1,636
8,051
(6,415
(3,012
(3,590
578
328
4,219
(463
(1,372
909
(9,864
(132,128
(899
10,492
(153,550
The $9.9 million net decrease in Interest expense is primarily driven by the following changes:
During the nine months ended September 30, 2020, we recognized $132.1 million of Goodwill impairment, due to the significant adverse market and economic impacts of the COVID-19 pandemic.
During the nine months ended September 30, 2021, we recognized gains on sale of $38.2 million from three land parcels, five operating properties, and a portion of an operating property. During the nine months ended September 30, 2020, we recognized gains on sale of $48.7 million from seven land parcels, three operating properties, and receipt of property insurance proceeds.
During the nine months ended September 30, 2020, we had $19.4 million of debt extinguishment costs related to the redemption of our $300 million 3.75% notes due to mature in 2022.
Net investment income increased $1.8 million primarily driven by realized gains, and partially by changes in unrealized gains and losses of plan assets held in the non-qualified deferred compensation plan. There is an offsetting charge in General and administrative costs related to participant obligations within the deferred compensation plans.
38
26,014
15,995
10,019
127
532
(405
1,494
745
749
1,702
779
1,058
481
577
1,486
607
631
604
(6,168
2,343
(8,511
3,986
The $4.0 million increase in our equity in income of investments in real estate partnerships is largely attributable to favorable uncollectible lease income along with re-instating straight-line rent on certain tenants returning to accrual basis during the three months ended September 30, 2021, including the following:
289,204
(2,054
287,150
(1,286
288,436
Supplemental Earnings Information
We use certain non-GAAP performance measures, in addition to certain performance metrics determined under GAAP, as we believe these measures improve the understanding of the Company's operating results. We believe these non-GAAP measures provide useful information to our Board of Directors, management and investors regarding certain trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, purposes of determining management incentive compensation and budgeting, forecasting and planning purposes. We provide Pro-rata financial information because we believe it assists investors and analysts in estimating our economic interest in our consolidated and unconsolidated partnerships, when read in conjunction with the Company’s reported results under GAAP. We believe presenting our Pro-rata share of operating results, along with other non-GAAP measures, may assist in comparing the Company’s operating results to other REITs. We continually evaluate the usefulness, relevance, limitations, and calculation of our reported non-GAAP performance measures to determine how best to provide relevant information to the public, and thus such reported measures could change. See “Non-GAAP Measures” at the beginning of this Management's Discussion and Analysis.
39
We do not consider non-GAAP measures an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is they may exclude significant expense and income items that are required by GAAP to be recognized in our consolidated financial statements. In addition, they reflect the exercise of management’s judgment about which expense and income items are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, reconciliations of the non-GAAP financial measures we use to their most directly comparable GAAP measures are provided. Non-GAAP financial measures should not be relied upon in evaluating the financial condition, results of operations or future prospects of the Company.
Pro-Rata Same Property NOI:
Our Pro-rata same property NOI, excluding termination fees, changed from the following major components:
Nine months endedSeptember 30,
Base rent (1)
215,056
213,692
1,364
641,735
647,215
(5,480
Recoveries from tenants (1)
69,277
68,157
1,120
217,557
208,788
8,769
Percentage rent (1)
1,411
1,092
319
6,311
6,030
281
Termination fees (1)
2,032
1,353
679
4,408
5,515
(1,107
Uncollectible lease income
10,374
(28,464
38,838
19,333
(73,431
92,764
Other lease income (1)
2,384
323
8,318
7,099
1,219
3,722
1,548
2,174
7,455
4,845
2,610
Total real estate revenue
304,579
259,762
44,817
905,117
806,061
99,056
44,739
42,660
2,079
138,446
127,755
10,691
Termination expense
(25
39,591
39,713
(122
120,667
120,266
401
Ground rent
2,793
2,900
(107
8,686
8,961
(275
Total real estate operating expenses
87,123
85,273
1,850
267,799
257,007
10,792
Pro-rata same property NOI
217,456
174,489
42,967
637,318
549,054
88,264
Less: Termination fees
5,490
(1,082
Pro-rata same property NOI, excluding termination fees
215,424
173,136
42,288
632,910
543,564
89,346
Pro-rata same property NOI growth, excluding termination fees
24.4
%
16.4
Represents amounts included within Lease income in the accompanying Consolidated Statements of Operations that are contractually billable to the tenants per the terms of the lease agreements.
Billable Base rent increased $1.4 million during the three months ended September 30, 2021, due to rent steps in existing leases and rental rate growth. Billable Base rent decreased $5.5 million during the nine months ended September 30, 2021, due to loss of rents from occupancy declines and deferral agreements that required lease modification treatment, partially offset by rent steps in existing leases.
Recoveries from tenants increased $1.1 million and $8.8 million during the three and nine months ended September 30, 2021, due to higher operating expenses in the current year and higher recovery rates from our tenants.
Termination fees decreased $1.1 million during the nine months ended September 30, 2021, primarily due to strategic changes in anchor merchandising mix during 2020.
Uncollectible lease income decreased $38.8 million and $92.8 million during the three and nine months ended September 30, 2021, primarily driven by collection of previously reserved amounts and improvements in current period collection rates.
Other lease income increased $1.2 million during the nine months ended September 31, 2021, primarily due to an increase in easement fees earned and rent from temporary tenants.
Other property income increased $2.2 million and $2.6 million during the three and nine months ended September 30, 2021, primarily due to an increase in settlements.
Operating and maintenance increased $2.1 million and $10.7 million during the three and nine months ended September 30, 2021, due primarily to an increase in insurance premiums, property maintenance, legal and vacancy costs, and tenant reimbursable costs.
40
Same Property Rollforward:
Our same property pool includes the following property count, Pro-rata GLA, and changes therein:
PropertyCount
Beginning same property count
394
40,918
398
40,522
Acquired properties owned for entirety of comparable periods (1)
546
Disposed properties
SF adjustments (2)
(152
Ending same property count
41,312
393
40,228
396
40,525
Acquired properties owned for entirety of comparable periods presented (1)
924
315
Developments that reached completion by the beginning of earliest comparable period presented
683
553
(407
(3
(427
(116
Properties under or being repositioned for redevelopment
(445
2021 includes an adjustment arising from the acquisition of our partner's 80% share of the seven properties held in the USAA partnership, 20% of which was already included in our same property pool.
SF adjustments arise from remeasurements or redevelopments.
Nareit FFO and Core Operating Earnings:
Our reconciliation of net income attributable to common stock and unit holders to Nareit FFO and to Core Operating Earnings is as follows:
(in thousands, except share information)
Reconciliation of Net income to Nareit FFO
Adjustments to reconcile to Nareit FFO: (1)
Depreciation and amortization (excluding FF&E)
81,928
92,188
247,599
281,576
(505
10,586
(3,235
(38,584
(48,651
Nareit FFO attributable to common stock and unit holders
192,611
101,698
514,468
372,498
Reconciliation of Nareit FFO to Core Operating Earnings
Nareit Funds From Operations
Adjustments to reconcile to Core Operating Earnings (1):
Not Comparable Items
Promote income
(13,589
Certain Non Cash Items
Straight line rent
(4,004
(4,098
(10,294
(11,828
Uncollectible straight line rent
(4,376
8,316
159
31,574
Above/below market rent amortization, net
(6,390
(7,546
(18,098
(30,433
Debt premium/discount amortization
(368
(303
(460
(1,115
Core Operating Earnings
163,884
117,425
472,186
380,054
Includes Regency's Pro-rata share of unconsolidated investment partnerships, net of Pro-rata share attributable to noncontrolling interest.
41
Same Property NOI Reconciliation:
Our reconciliation of Net income attributable to common stockholders to Same Property NOI, on a Pro-rata basis, is as follows:
Less:
Other (1)
15,125
4,982
31,184
17,368
Plus:
Other operating expense
Other expense (income)
Equity in income of investments in real estate excluded from NOI (2)
11,023
14,527
49,267
46,888
Pro-rata NOI
218,598
177,180
637,237
558,145
Less non-same property NOI (3)
1,142
2,691
(81
9,091
Includes straight-line rental income and expense, net of reserves, above and below market rent amortization, other fees, and noncontrolling interest.
Includes non-NOI income earned and expenses incurred at our unconsolidated real estate partnerships, including those separated out above for our consolidated properties.
Includes revenues and expenses attributable to non-same property, sold property, development property, and corporate activities.
Liquidity and Capital Resources
We use cash flows generated from operating, investing, and financing activities to strengthen our balance sheet, finance our development and redevelopment projects, fund our investment activities, and maintain financial flexibility. A significant portion of our cash from operations is distributed to our common shareholders in the form of dividends in order to maintain our status as a REIT.
Except for $200 million of private placement debt, our Parent Company has no other commitments other than its guarantees of the commitments of our Operating Partnership. All remaining debt is held by our Operating Partnership or by our co-investment partnerships. The Operating Partnership is a co-issuer and a guarantor of the $200 million of outstanding debt of our Parent Company. The Parent Company will from time to time access the capital markets for the purpose of issuing new equity and will simultaneously contribute all of the offering proceeds to the Operating Partnership in exchange for additional partnership units.
We continuously monitor our tenant rent collections. Our rent collection experience since the pandemic began has been lower than historical pre-pandemic averages, but has substantially improved since its low in the second quarter of 2020. During the three months ended September 30, 2021, billed base rent collections were 98% through November 1, 2021. Although improving, collection rates are expected to remain lower than historical pre-pandemic averages for the foreseeable future. The success of tenants and their ability to pay rent, continues to be significantly influenced by challenges such as rising costs, labor shortages, supply chain constraints, reduced sales, store closures as well as capacity restrictions, and impacts from variants of COVID-19, including the effectiveness of vaccines.
We draw on multiple financing sources to fund our long-term capital needs, including the capital requirements of our in process and planned developments, redevelopments, and capital expenditures, and the repayment of debt. We expect to meet these needs by using a combination of the following: cash flow from operations after funding our dividend, proceeds from the sale of real estate, mortgage loan and unsecured bank financing, distributions received from our co-investment partnerships, and when the capital markets are favorable, proceeds from the sale of equity or the issuance of new unsecured debt. We continually evaluate alternative financing options, and we believe we can obtain financing on reasonable terms.
We have no unsecured debt maturities until 2024 and a manageable level of secured mortgage maturities during the next 12 months, including those mortgages within our joint ventures. Based upon our available cash balance, sources of capital, our current credit ratings, and the number of high quality, unencumbered properties we own, we believe our available capital resources are sufficient to meet our expected capital needs for the next 12 months.
In addition to our $359.4 million of unrestricted cash, we have the following additional sources of capital available:
Line of Credit
Total commitment amount
1,250,000
Available capacity (2)
1,240,619
Maturity (3)
March 23, 2025
During May and June 2021, we entered into forward sales agreements with respect to 2,316,760 shares that were executed in several tranches at a weighted average offering price of $64.59 per share before any underwriting discount and offering expenses. During September 2021, we settled 1,332,142 of the shares subject to forward sales agreements, receiving proceeds of $82.5 million. The remaining shares subject to forward sales agreements must be settled within approximately one year of their trade dates, which vary by agreement, and range from June 6, 2022 through June 11, 2022, and are expected to result in net proceeds of approximately $64.0 million.
Net of letters of credit.
The Company has the option to extend the maturity for two additional six-month periods.
The declaration of dividends is determined quarterly by our Board of Directors. On November 3, 2021 our Board of Directors declared a common stock dividend of $0.625 per share, payable on January 5, 2022, to shareholders of record as of December 16, 2021. While future dividends will be determined at the discretion of our Board of Directors, we plan to continue paying an aggregate amount of distributions to our stock and unit holders that, at a minimum, meet the requirements to continue qualifying as a REIT for federal income tax purposes. We have historically generated sufficient cash flow from operations to fund our dividend distributions. During the nine months ended September 30, 2021 and 2020, we generated cash flow from operations of $508.5 million and $374.6 million, respectively, and paid $303.3 million and $301.9 million in dividends to our common stock and unit holders, respectively.
We currently have development and redevelopment projects in various stages of construction, along with a pipeline of potential projects for future development or redevelopment. After funding our common stock dividend payment in October 2021, we estimate that we will require capital during the next twelve months of approximately $363.0 million. This required capital includes funding construction and related costs for committed tenant improvements and in-process development and redevelopment, making capital contributions to our co-investment partnerships, and repaying maturing debt. If we start new development or redevelopments, commit to property acquisitions, repay debt prior to maturity, declare future dividends, or repurchase shares of our common stock, our cash requirements will increase. If we refinance maturing debt, our cash requirements will decrease.
We endeavor to maintain a high percentage of unencumbered assets. As of September 30, 2021, 88.7% of our wholly-owned real estate assets were unencumbered. Such assets allow us to access the secured and unsecured debt markets and to maintain availability on the Line. Our trailing twelve month Fixed charge coverage ratio, including our Pro-rata share of our partnerships, was 4.2x and 3.6x for the periods ended September 30, 2021, and December 31, 2020, respectively, and our Pro-rata net debt-to-operating EBITDAre ratio on a trailing twelve month basis was 5.0x and 6.0x, respectively, for the same periods.
Our Line and unsecured loans require that we remain in compliance with various covenants, which are described in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2020. We are in compliance with these covenants at September 30, 2021, and expect to remain in compliance.
43
Summary of Cash Flow Activity
The following table summarizes net cash flows related to operating, investing, and financing activities of the Company:
133,889
63,951
(378,919
(181,079
Total cash and cash equivalents and restricted cash
81,809
Net cash provided by operating activities:
Net cash provided by operating activities increased $133.9 million due to:
Net cash used in investing activities:
Net cash used in investing activities changed by $64.0 million as follows:
(61,744
400
28,466
6,322
531
26,169
63,214
(68
(11,842
12,503
Significant changes in investing activities include:
44
During the same period in 2020, we invested $48.0 million, including:
We plan to continue developing and redeveloping shopping centers for long-term investment. During 2021, we deployed capital of $120.8 million for the development, redevelopment, and improvement of our real estate properties, comprised of the following:
Capital expenditures:
Building and tenant improvements
34,030
35,475
(1,445
Redevelopment costs
61,176
86,979
(25,803
Development costs
14,897
13,816
1,081
2,963
2,915
48
Capitalized direct compensation
7,761
10,108
(2,347
120,827
149,293
(28,466
The following table summarizes our development projects:
(in thousands, except cost PSF)
Market
StartDate
EstimatedStabilizationYear (1)
Estimated / Actual NetDevelopmentCosts (2) (3)
GLA (3)
Cost PSFof GLA (2) (3)
% of Costs Incurred
Developments In-Process
Carytown Exchange - Phases I & II
Richmond, VA
64%
Q4-18
29,174
74
72
East San Marco
Jacksonville, FL
Q4-20
19,519
59
331
Eastfield at Baybrook (4)
Houston, TX
50%
2,337
55
Estimated Stabilization Year represents the estimated first full calendar year that the project will reach our expected stabilized yield.
Includes leasing costs and is net of tenant reimbursements.
Estimated Net Development Costs and GLA reported based on Regency’s ownership interest in the partnership at completion.
(4)
Estimated Net Development Costs for Eastfield at Baybrook Phase 1A is limited to our ownership interest in the value of the land and site improvements where we are committed to deliver a parcel to a grocer, under a lease agreement, to construct their building and improvements.
The following table summarizes our redevelopment projects in process and completed:
Start Date
Estimated Stabilization Year (1)
Estimated IncrementalProject Costs (2) (3)
Redevelopments In-Process
The Crossing Clarendon
Metro, DC
57,929
129
The Abbot
Boston, MA
Q2-19
57,410
65
70
Sheridan Plaza
Hollywood, FL
Q3-19
12,115
507
76
West Bird Plaza
Q4-19
10,338
86
Preston Oaks
Dallas, TX
22,327
103
64
Serramonte Center
San Francisco, CA
2026
55,000
1,073
Westbard Square - Phase I
Bethesda, MD
Q2-21
37,038
123
Various Redevelopments
Various
40% - 100%
24,120
1,082
62
Redevelopments Completed
Bloomingdale Square
Tampa, FL
Q3-18
21,327
252
Point 50
17,504
91
Various Properties
7,636
574
98
46
Net cash used in financing activities:
Net cash flows from financing activities changed by $378.9 million during 2021, as follows:
Net proceeds from common stock issuances
(43,098
1,446
(1,079
Dividend payments and operating partnership distributions
(1,356
Repayment of unsecured credit facilities, net
(220,000
(45,000
Proceeds from debt issuance
(598,830
Debt repayment, including early redemption costs
(22,212
(333,788
311,576
(2,405
Proceeds from sale of treasury stock, net
(173
Significant financing activities during the nine months ended September 30, 2021 and 2020, include the following:
47
Investments in Real Estate Partnerships
The following table is a summary of the unconsolidated combined assets and liabilities of our co-investment partnerships and our Pro-rata share:
Combined
Regency's Share (1)
(dollars in thousands)
Number of Co-investment Partnerships
Regency’s Ownership
20% - 50%
2,793,429
3,067,227
1,003,943
1,086,874
1,563,899
1,687,587
556,348
577,001
1,229,530
1,379,640
447,595
509,873
Negative investment in US Regency Retail I, LLC (USAA) (2)
Basis difference
(67,891
(47,119
Pro-rata financial information is not, and is not intended to be, a presentation in accordance with GAAP. However, management believes that providing such information is useful to investors in assessing the impact of its investments in real estate partnership activities on our operations, which includes such items on a single line presentation under the equity method in our consolidated financial statements.
On August 1, 2021, we acquired our partner’s 80% interest in the seven properties held in the USAA partnership. See note 2.
Our equity method investments in real estate partnerships consist of the following:
September 30,2021
December 31,2020
GRI-Regency, LLC (GRIR)
154,948
179,728
12,203
27,627
7,404
8,699
39,399
37,882
5,480
25,341
25,908
134,929
177,203
Total Investment in real estate partnerships
(4,401
Net Investment in real estate partnerships
462,754
Notes Payable - Investments in Real Estate Partnerships
Scheduled principal repayments on notes payable held by our investments in real estate partnerships were as follows:
UnsecuredMaturities
Regency’sPro-RataShare
2,371
927
7,736
254,893
7,300
269,929
98,932
3,196
171,608
174,804
65,137
1,796
33,690
35,486
14,217
2,168
137,000
139,168
42,153
10,859
823,321
834,180
299,432
Net unamortized loan costs, debt premium / (discount)
(9,276
(3,280
28,126
1,411,236
1,446,662
517,518
On August 1, 2021, we acquired our partner’s 80% interest in the seven properties held in the USAA partnership, including the $84 million assumption of our partner’s share of mortgage loans. See note 2.
At September 30, 2021, our investments in real estate partnerships had notes payable of $1.4 billion maturing through 2034, of which 93.2% had a weighted average fixed interest rate of 3.7%. The remaining notes payable float with LIBOR and had a weighted average variable interest rate of 2.5%. These fixed and variable rate notes payable are all non-recourse, and our Pro-rata share was $517.5 million as of September 30, 2021. As notes payable mature, we expect they will be repaid from proceeds from new borrowings and/or partner capital contributions.
We believe that our partners are financially sound and have sufficient capital or access thereto to fund future capital requirements. In the event that a co-investment partner was unable to fund its share of the capital requirements of the co-investment partnership, we would have the right, but not the obligation, to loan the defaulting partner the amount of its capital call.
Management fee income
In addition to earning our Pro-rata share of net income or loss in each of these co-investment partnerships, we receive fees, as shown below:
Asset management, property management, leasing, and other transaction fees
19,662
6,130
33,392
19,134
In connection with our buy-out of the partner's interest in the USAA partnership, we received and recognized a promote fee of $13.6 million in consideration for exceeding return thresholds resulting from our performance as managing member.
See Note 1 to Unaudited Financial Statements.
Environmental Matters
We are subject to numerous environmental laws and regulations as they apply to our shopping centers pertaining primarily to specific chemicals historically used by certain current and former dry cleaning tenants and the existence of asbestos in older shopping centers. We believe that the few tenants who currently operate dry cleaning plants or gas stations do so in accordance with current laws and regulations. Generally, we endeavor to require tenants to remove dry cleaning plants from our shopping centers or convert them to more environmentally friendly systems, in accordance with the terms of our leases. We have a blanket environmental insurance policy for third-party liabilities and remediation costs on shopping centers that currently have no known environmental contamination. We have also secured environmental insurance, where appropriate, on a relatively small number of specific properties with known contamination, in order to mitigate our environmental risk. We monitor the shopping centers containing environmental issues and in certain cases voluntarily remediate the sites. We also have legal obligations to remediate certain sites and we are in the process of doing so.
49
As of September 30, 2021, we had accrued liabilities of $7.4 million for our Pro-rata share of environmental remediation, including our Investments in real estate partnerships. We believe that the ultimate remediation of currently known environmental matters will not have a material effect on our financial position, liquidity, or results of operations. We can give no assurance that existing environmental studies on our shopping centers have revealed all potential environmental contamination; that our estimate of liabilities will not change as more information becomes available; that any previous owner, occupant or tenant did not create any material environmental condition not known to us; that the current environmental condition of the shopping centers will not be affected by tenants and occupants, by the condition of nearby properties, or by unrelated third parties; or that changes in applicable environmental laws and regulations or their interpretation will not result in additional environmental liability to us.
Inflation/Deflation
Although inflation has been historically low and has had a minimal impact on the operating performance of our shopping centers, inflation has recently increased in the United States. Changes in economic conditions and supply chain constraints have spurred a rise in wages and increased costs for materials. Further, monetary policy and stimulus steps by the federal government and the Federal Reserve, could lead to higher inflation rates or prolonged inflation, which could negatively impact our tenants, our operating costs, and our construction costs. Substantially all of our long-term leases contain provisions designed to mitigate the adverse impact of inflation on our operating centers, which require tenants to pay their Pro-rata share of operating expenses, including common-area maintenance, real estate taxes, insurance and utilities. In addition, many of our leases are for terms of less than ten years, which permits us to seek increased rents upon re-rental at market rates. During deflationary periods or periods of economic weakness, minimum rents and percentage rents may decline as the supply of available retail space exceeds demand and consumer spending declines. Occupancy declines may also result in lower recovery rates of our operating expenses.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We continuously monitor the capital markets and evaluate our ability to issue new debt, to repay maturing debt, or fund our commitments. Although the capital markets have experienced volatility related to the pandemic, we continue to believe, in light of our credit ratings, the capacity under our unsecured credit facility, and the number of high quality, unencumbered properties that we own which could collateralize borrowings, we will be able to successfully issue new secured or unsecured debt to fund maturing debt obligations. However, the degree to which such capital market volatility will adversely impact the interest rates on any new debt that we may issue is uncertain. Otherwise, there have been no material changes from the quantitative and qualitative disclosures about market risk disclosed in item 7A of Part II of our Form 10-K for the year ended December 31, 2020.
Item 4. Controls and Procedures
Controls and Procedures (Regency Centers Corporation)
Under the supervision and with the participation of the Parent Company's management, including its chief executive officer and chief financial officer, the Parent Company conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, the Parent Company's chief executive officer and chief financial officer concluded that its disclosure controls and procedures were effective as of the end of the period covered by this quarterly report on Form 10-Q to ensure information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Parent Company in the reports it files or submits is accumulated and communicated to management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in the Parent Company's internal controls over financial reporting identified in connection with this evaluation that occurred during the third quarter of 2021 which have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Controls and Procedures (Regency Centers, L.P.)
Under the supervision and with the participation of the Operating Partnership's management, including the chief executive officer and chief financial officer of its general partner, the Operating Partnership conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act. Based on this evaluation, the chief executive officer and chief financial officer of its general partner concluded that its disclosure controls and procedures were effective as of the end of the period covered by this quarterly report on Form 10-Q to ensure information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the
time period specified in the SEC's rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Operating Partnership in the reports it files or submits is accumulated and communicated to management, including the chief executive officer and chief financial officer of its general partner, as appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in the Operating Partnership's internal controls over financial reporting identified in connection with this evaluation that occurred during the third quarter of 2021 which have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 1. Legal Proceedings
We are a party to various legal proceedings that arise in the ordinary course of our business. We are not currently involved in any litigation nor to our knowledge, is any litigation threatened against us, the outcome of which would, in our judgment based on information currently available to us, have a material adverse effect on our financial position or results of operations. However, no assurances can be given as to the outcome of any threatened or pending legal proceedings.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in item 1A. of Part I of our Form 10-K for the year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table represents information with respect to purchases by the Parent Company of its common stock, by month, during the three months ended September 30, 2021.
Period
Total number of shares purchased (1)
Average price paid per share (1)
Total number of shares purchased as part of publicly announced plans or programs (2)
Maximum number or approximate dollar value of shares that may yet be purchased under the plans or programs (2)
July 1 through July 31, 2021
250,000,000
August 1 through August 31, 2021
286
66.39
September 1 through September 30, 2021
437
69.04
Represents shares repurchased to cover payment of withholding taxes in connection with restricted stock vesting by participants under Regency’s Long-Term Omnibus Plan.
On February 3, 2021, the Company's Board authorized a common share repurchase program under which the Company may purchase, from time to time, up to a maximum of $250 million of shares of its outstanding common stock through open market purchases and/or in privately negotiated transactions. Any shares purchased will be retired. This program expires by its terms on February 3, 2023. The timing and actual number of shares purchased under the program depend upon marketplace conditions and other factors. The authorization remains subject to the discretion of the Board. Through September 30, 2021, no shares have been repurchased under this program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Item 6. Exhibits
In reviewing any agreements included as exhibits to this report, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company, its subsidiaries or other parties to the agreements. Each agreement contains representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading. Additional information about the Company may be found elsewhere in this report and the Company's other public files, which are available without charge through the SEC's website at http://www.sec.gov. Unless otherwise indicated below, the Commission file number to the exhibit is No. 001-12298 (Regency Centers Corporation) and 000-24763 (Regency Centers, L.P.).
Ex #
31.
Rule 13a-14(a)/15d-14(a) Certifications.
31.1
Rule 13a-14 Certification of Chief Executive Officer for Regency Centers Corporation.
31.2
Rule 13a-14 Certification of Chief Financial Officer for Regency Centers Corporation.
31.3
Rule 13a-14 Certification of Chief Executive Officer for Regency Centers, L.P.
31.4
Rule 13a-14 Certification of Chief Financial Officer for Regency Centers, L.P.
32.
Section 1350 Certifications.
32.1 *
18 U.S.C. § 1350 Certification of Chief Executive Officer for Regency Centers Corporation.
32.2 *
18 U.S.C. § 1350 Certification of Chief Financial Officer for Regency Centers Corporation.
32.3 *
18 U.S.C. § 1350 Certification of Chief Executive Officer for Regency Centers, L.P.
32.4 *
18 U.S.C. § 1350 Certification of Chief Financial Officer for Regency Centers, L.P.
101.
Interactive Data Files
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104.
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*
Furnished, not filed.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
November 5, 2021
By:
/s/ Michael J. Mas
Michael J. Mas, Executive Vice President and Chief Financial Officer (Principal Financial Officer)
/s/ J. Christian Leavitt
J. Christian Leavitt, Senior Vice President and Treasurer (Principal Accounting Officer)
Regency Centers Corporation, General Partner